FINANCIAL INTEGRATION AND ENVIRONMENT IN AFRICA: THE ROLE OF OUTPUT GROWTH AND FOREIGN DIRECT INVESTMENT

Abstract

As economies integrate financially and both investment and output increase, the environment may be affected depending on the nature of international financial resources attracted into the country. Hence, this study examines the effect of financial integration, output growth, and foreign direct investment (FDI) on the environment in selected African countries involving Nigeria, South Africa, Egypt, Algeria, and Angola between 1980 and 2017. The study uses carbon emissions and particulate emissions (PM) to proxy pollution and analyze the data through the fully modified ordinary least squares (FMOLS) technique. Empirical results show that financial integration worsens pollution in Egypt, Nigeria, Algeria, and in Africa; output growth deteriorates pollution in South Africa, Algeria, Angola, and in Africa; while FDI fuels environmental degradation in Egypt and South Africa. We recommend that African countries should strive to establish specific targets for lowering emissions even though the Kyoto Protocol did not set specific emissions reduction targets for them.